“Cost shifting” is a term used in the world of health-care payments, insurance and Medicaid and Medicare reimbursements. It is a controversial term discussed at length in health-care, legislative and advocacy circles.

Definition

Cost shifting occurs when a hospital or other health-care provider charges an insured patient more than it does an uninsured patient for the same procedure or service. Those with health insurance, in effect, pay for the financial loss hospitals incur when they provide services to those without insurance.

Government Reimbursement

Health-care providers must make profits to stay in business, and they charge more to insured patients to recoup their losses when they provide care for those without insurance and those who receive government medical assistance. Medicaid and Medicare pay significantly less than the cost of providing health-care products and services. This adds to the losses hospitals and other health care facilities absorb when they provide care for the uninsured.

Lowering Reimbursements

As the federal deficit grows, the federal government often makes cuts to Medicaid and Medicare. This translates to a decrease in the revenue doctors and hospitals receive. To stay in business, health-care providers must make profits, and they can’t absorb losses from providing care to the uninsured as Medicaid and Medicare reimbursements decrease. Insured consumers face higher premiums, deductibles and charges for services because of the increase in health care costs, charity care, and decreased Medicaid and Medicare reimbursements.

The Debate

Those with health insurance don’t like that their annual premiums increase because hospitals charge them more than they do the uninsured. The argument that rising health care costs over time will continue to increase health care insurance rates is used extensively in the political debate over health care. Some argue, like John F. Cogan, R. Glenn Hubbard and Daniel Kessler of “The Wall Street Journal,” that the actual amount by which annual premiums increase as a result of cost shifting is only about $80 per year for the typical insurance plan, or a 1.7 percent increase in annual private insurance premiums.